Deck 28: International Finance and the Exchange Rate

Question 1

The global links between countries through trade and international financial flows is an example of the:

A)foreign exchange market, the bond market, and the government.
B)stock market, the labor market, and the bond market.
C)banks, the goods market, and the labor market.
D)interdependence principle.

Answer 1

D

Question 2

Which of the following is an example of foreign direct investment?

A)A business from Ontario, Canada, opens a production plant in Manitoba, Canada.
B)A Brazilian firm opens a production plant in Argentina.
C)Chinese tourists visit the United States.
D)Italian savers buy British stocks.

Answer 2

B

Question 3

Which of the following is an example of foreign direct investment?

A)Tanzania imports farming equipment from the United States.
B)Ugandans buy bonds in Kenya.
C)An American company opens a factory in Dhaka, Bangladesh.
D)American savers buy stocks from German companies.

Answer 3

C

Question 4

China's currency is called the:

A)yuan.
B)rupee.
C)yen.
D)peso.

Question 5

Japan's currency is called the:

A)yuan.
B)pound.
C)yen.
D)real.

Question 6

Which of the following is NOT a type of global financial flow?

A)Foreign portfolio investment
B)Foreign direct investment
C)International bond purchases
D)Imports of goods

Question 7

Which of the following is an example of foreign portfolio investment?

A)A Peruvian imports animal feed from Brazil.
B)An American purchases South African stocks.
C)An Indian tourist travels to Pakistan.
D)A Ugandan saver opens a checking account in the United States.

Question 8

Russia's currency is called the:

A)ruble.
B)dollar.
C)peso.
D)rupee.

Question 9

India's currency is called the:

A)euro.
B)won.
C)peso.
D)rupee.

Question 10

Australia's currency is called the:

A)yen.
B)dollar.
C)peso.
D)pound.

Question 11

The three forms of international financial flows are:

A)inflows, outflows, and loans.
B)trade flows, financial flows, and currency flows.
C)imports, exports, and foreign aid.
D)foreign direct investment, foreign portfolio investment, and deposits and loans.

Question 12

South Korea's currency is called the:

A)euro.
B)won.
C)peso.
D)rupee.

Question 13

Mexico's currency is called the:

A)yen.
B)dollar.
C)peso.
D)pound.

Question 14

You take a trip to Dhaka, Bangladesh. Your hotel room costs 12,000 Bangladeshi taka per night, and the nominal exchange rate is 85 taka per U.S. dollar. How much does your hotel room cost in U.S. dollars?

A)$141
B)$175
C)$102
D)$120

Question 15

Suppose you are visiting China. The nominal exchange rate is 7.08 yuan per U.S. dollar. A meal costs 40 yuan. How much does this meal cost in U.S. dollars?

A)$5.65
B)$40.00
C)$7.08
D)$283.20

Question 16

The nominal exchange rate between Japan and the United States is about 109 yen per U.S. dollar. You visit the Tsukiji Fish Market in Tokyo and purchase a piece of fish for 1,350 yen. How much did your fish cost in U.S. dollars?

A)$11.25
B)$10.00
C)$13.50
D)$12.40

Question 17

The nominal exchange rate between Japan and the United States is about 109 yen per U.S. dollar. You visit the Studio Ghibli Museum in Tokyo and find that each ticket costs 1000 yen. You purchase two tickets. How much is your purchase in U.S. dollars?

A)$9.17
B)$16.70
C)$18.35
D)$20.00

Question 18

In Nairobi, Kenya, a bottle of olive oil costs 1,320 Kenyan shillings. At your local Stop & Shop supermarket in the United States, the same bottle of olive oil costs $7.98. If the exchange rate is 103 Kenyan shillings per U.S. dollar, then what is the U.S. dollar price of the olive oil in Kenya?

A)$10.30
B)$12.82
C)$7.98
D)$13.20

Question 19

Consider the following table, which shows the prices of cappuccinos in cafes in various cities.
$$\begin{array} { | l | l | l | } \hline \text { CITY } & \text { PRICE OF A CUP OF CAPPUCCINO } & \text { NOMINAL EXCHANGE RATE } \\\hline \text { London } & 3.15 \text { British pounds } & 1.28 \text { U.S. dollars per British pound } \\\hline \text { Paris } & \text { 5.1 European euros } & 1.11 \text { U.S. dollars per European Euro } \\\hline \text { Melbourne } & \text { 4.6 Australian dollars } & 0.68 \text { U.S. dollar per Australian dollar } \\\hline \text { Stockholm } & \text { 40 Swedish kronas } & 0.1 \text { U.S. dollar per Swedish krona } \\\hline \text { Moscow } & \text { 220 Russian rubles } & 0.02 \text { U.S. dollar per Russian ruble } \\\hline\end{array}$$ ?
What is the approximate U.S. dollar price of a cappuccino in Melbourne?

A)$4.40
B)$4.10
C)$3.13
D)$6.77

Question 20

Consider the following table, which shows the prices of cappuccinos in cafes in various cities.
$$\begin{array} { | l | l | l | } \hline \text { CITY } & \text { PRICE OF A CUP OF CAPPUCCINO } & \text { NOMINAL EXCHANGE RATE } \\\hline \text { London } & 3.15 \text { British pounds } & 1.28 \text { U.S. dollars per British pound } \\\hline \text { Paris } & \text { 5.1 European euros } & 1.11 \text { U.S. dollars per European Euro } \\\hline \text { Melbourne } & \text { 4.6 Australian dollars } & 0.68 \text { U.S. dollar per Australian dollar } \\\hline \text { Stockholm } & \text { 40 Swedish kronas } & 0.1 \text { U.S. dollar per Swedish krona } \\\hline \text { Moscow } & \text { 220 Russian rubles } & 0.02 \text { U.S. dollar per Russian ruble } \\\hline\end{array}$$ ?
What is the approximate U.S. dollar price of a cappuccino in Moscow?

A)$5.67
B)$4.10
C)$4.40
D)$3.13

Question 21

Consider the following table, which shows the prices of cappuccinos in cafes in various cities.
$$\begin{array} { | l | l | l | } \hline \text { CITY } & \text { PRICE OF A CUP OF CAPPUCCINO } & \text { NOMINAL EXCHANGE RATE } \\\hline \text { London } & 3.15 \text { British pounds } & 1.28 \text { U.S. dollars per British pound } \\\hline \text { Paris } & \text { 5.1 European euros } & 1.11 \text { U.S. dollars per European Euro } \\\hline \text { Melbourne } & \text { 4.6 Australian dollars } & 0.68 \text { U.S. dollar per Australian dollar } \\\hline \text { Stockholm } & \text { 40 Swedish kronas } & 0.1 \text { U.S. dollar per Swedish krona } \\\hline \text { Moscow } & \text { 220 Russian rubles } & 0.02 \text { U.S. dollar per Russian ruble } \\\hline\end{array}$$ ?
What is the approximate U.S. dollar price of a cappuccino in Paris?

A)$4.60
B)$4.10
C)$3.13
D)$5.66

Question 22

Consider the following table, which shows the prices of cappuccinos in cafes in various cities.
$$\begin{array} { | l | l | l | } \hline \text { CITY } & \text { PRICE OF A CUP OF CAPPUCCINO } & \text { NOMINAL EXCHANGE RATE } \\\hline \text { London } & 3.15 \text { British pounds } & 1.28 \text { U.S. dollars per British pound } \\\hline \text { Paris } & \text { 5.1 European euros } & 1.11 \text { U.S. dollars per European Euro } \\\hline \text { Melbourne } & \text { 4.6 Australian dollars } & 0.68 \text { U.S. dollar per Australian dollar } \\\hline \text { Stockholm } & \text { 40 Swedish kronas } & 0.1 \text { U.S. dollar per Swedish krona } \\\hline \text { Moscow } & \text { 220 Russian rubles } & 0.02 \text { U.S. dollar per Russian ruble } \\\hline\end{array}$$ ?
Where does the cappuccino cost the MOST in terms of nominal U.S. dollars?

A)London
B)Paris
C)Melbourne
D)Stockholm

Question 23

Consider the following table, which shows the prices of cappuccinos in cafes in various cities.
$$\begin{array} { | l | l | l | } \hline \text { CITY } & \text { PRICE OF A CUP OF CAPPUCCINO } & \text { NOMINAL EXCHANGE RATE } \\\hline \text { London } & 3.15 \text { British pounds } & 1.28 \text { U.S. dollars per British pound } \\\hline \text { Paris } & \text { 5.1 European euros } & 1.11 \text { U.S. dollars per European Euro } \\\hline \text { Melbourne } & \text { 4.6 Australian dollars } & 0.68 \text { U.S. dollar per Australian dollar } \\\hline \text { Stockholm } & \text { 40 Swedish kronas } & 0.1 \text { U.S. dollar per Swedish krona } \\\hline \text { Moscow } & \text { 220 Russian rubles } & 0.02 \text { U.S. dollar per Russian ruble } \\\hline\end{array}$$ ?
Where does the cappuccino cost the LEAST in terms of nominal U.S. dollars?

A)London
B)Paris
C)Melbourne
D)Stockholm

Question 24

The U.S. trades with many countries within the European Union. If the European Union falls into a recession, the demand for U.S. dollars will shift to the _____, indicating a _____ in the demand for the U.S. dollar.

A)left; fall
B)right; fall
C)left; rise
D)right; rise

Question 25

The United States trades with many countries within the European Union. If the U.S. economy falls into a recession, the U.S. demand for imports will _____, leading to a _____ shift in the demand for the euro.

A)rise; left
B)rise; right
C)fall; left
D)fall; right

Question 26

The United States trades with many countries within the European Union. If the eurozone goes into a recession, the demand for U.S. exports will _____, leading to a _____ shift in the demand for the dollar.

A)fall; right
B)fall; left
C)rise; left
D)rise; right

Question 27

One of Fiji's major trading partners is Australia. If Australia's GDP rises, the demand for Fiji's exports will _____, leading to a _____ shift in the demand for the Fijian dollar.

A)rise; left
B)rise; right
C)fall; left
D)fall; right

Question 28

If Fiji's GDP rises, the demand for imports will _____, leading to a _____ shift in the supply of the Fijian dollar.

A)rise; left
B)rise; right
C)fall; left
D)fall; right

Question 29

Which of the following figures shows the correct shift in the US dollar market when US exports increase?

A)

B)

C)

D)

Question 30

If the United Kingdom has high interest rates relative to other countries, the demand for the pound will _____, and the pound will _____ .

A)rise; appreciate
B)fall; depreciate
C)rise; depreciate
D)fall; appreciate

Question 31

If the United Kingdom has lower interest rates relative to the United States, the demand for the pound will _____, and the pound will _____.

A)rise; appreciate
B)fall; depreciate
C)rise; depreciate
D)fall; appreciate

Question 32

If the United Kingdom has lower interest rates relative to the United States, the supply of the pound will _____, leading to a _____ shift in the supply of the pound.

A)rise; left
B)rise; right
C)fall; left
D)fall; right

Question 33

If the United Kingdom has lower interest rates relative to the United States, the supply of the U.S. dollar will _____, leading to a _____ shift in the supply of the U.S. dollar.

A)rise; left
B)rise; right
C)fall; left
D)fall; right

Question 34

Which of the following factors will NOT lead to a shift in the demand of the U.S. dollar?

A)Interest rate differentials
B)Trade barriers
C)Relative GDP levels
D)The exchange rate

Question 35

Which of the following factors will NOT lead to a shift in the supply of the U.S. dollar?

A)The exchange rate
B)Domestic prices
C)The strength of the domestic economy
D)Foreign prices

Question 36

Which of the following figures shows the correct shift in the US dollar market when financial inflows into the US increase?

A)

B)

C)

D)

Question 37

Kenya trades with Nigeria. If the prices of Kenyan products rise, the demand for the Kenyan shilling will _____, and the shilling will _____.

A)rise; appreciate
B)rise; depreciate
C)fall; depreciate
D)fall; appreciate

Question 38

If Canada has low interest rates relative to other countries, the demand for the Canadian dollar will _____, and the Canadian dollar will _____.

A)rise; appreciate
B)fall; depreciate
C)rise; depreciate
D)fall; appreciate

Question 39

Which of the following figures shows the effect on the British pound market when UK interest rates increase?

A)

B)

C)

D)

Question 40

The United States trades with Nigeria. If inflation rises in Nigeria, what will happen in the market for the Nigerian naira?

A)The demand for the naira will rise, and the naira will appreciate.
B)The demand for the naira will fall, and the naira will depreciate.
C)The demand for the naira will rise, and the naira will depreciate.
D)The demand for the naira will fall, and the naira will appreciate.

Question 41

Which of the following figures shows the correct shift in the market for Ugandan shillings (the currency of Uganda) when Ugandan GDP increases?

A)

B)

C)

D)

Question 42

Which of the following figures shows the correct shift(s) in the market for Egyptian pounds (the currency of Egypt) when Egypt's domestic prices rise?

A)

B)

C)

D)

Question 43

If corporate tax rates fall in the United States, the demand for the dollar will _____, and the dollar will _____.

A)rise; appreciate
B)fall; depreciate
C)rise; depreciate
D)fall; appreciate

Question 44

If corporate tax rates rise in Brazil, the demand for the real will _____, and the real will _____.

A)rise; appreciate
B)fall; appreciate
C)rise; depreciate
D)fall; depreciate

Question 45

From the 1930s to the 1990s, the Australian tobacco leaf industry benefited from regulation on local leaf content. The regulation stipulated that cigarette manufacturers that used imported tobacco leaf also had to include 57% domestically produced tobacco leaf in their products. In the 1990s, this regulation was lifted. As a result, the local tobacco industry eventually failed because it could not compete with foreign producers. If Australia is now importing cigarettes from China, we would expect to see _____ in the demand for the Chinese yuan and _____ in the supply of the Australian dollar.

A)an increase; a decrease
B)a decrease; an increase
C)a decrease; a decrease
D)an increase; an increase

Question 46

Which of the following figures shows the correct shift in the Croatian kuna (the currency of Croatia) market if the value of the kuna is expected to rise in the near future?

A)

B)

C)

D)

Question 47

Which of the following figures shows the correct shift in the market for the Mongolian tugrik (the currency of Mongolia) if the value of the tugrik is expected to fall in the near future?

A)

B)

C)

D)

Question 48

If business profitability decreases in Albania, which of the following figures shows what we expect to see in the market for the Albanian lek?

A)

B)

C)

D)

Question 49

After the August 2019 primary elections in Argentina, foreign investors perceived increased political risk. The demand for the peso _____, and the peso _____.

A)rose; appreciated
B)fell; appreciated
C)rose; depreciated
D)fell; depreciated

Question 50

Which of the following figures shows the correct shift in the market for the Japanese yen if Japanese interest rates decrease?

A)

B)

C)

D)

Question 51

If a country's bonds are downgraded by Moody's ratings agency, the demand for the currency will _____, and the currency will _____.

A)remain unchanged; appreciate
B)increase; depreciate
C)decrease; depreciate
D)increase; appreciate

Question 52

If a country's bonds ratings are increased by Standard & Poor's ratings agency, the demand for the currency will _____, and the currency will _____.

A)remain unchanged; appreciate
B)increase; depreciate
C)decrease; depreciate
D)increase; appreciate

Question 53

The United Kingdom passed a referendum on leaving the European Union. Much uncertainty revolved around the exact terms of the exit. In October 2019, the possibility of a deal on the exit terms raised investor optimism, so the demand for the pound _____, and the pound _____.

A)rose; appreciated
B)fell; appreciated
C)rose; depreciated
D)fell; depreciated

Question 54

Kazakhstan trades with Russia. If costs of production fall in Russia, the demand for the Kazakhstani tenge will _____, and the tenge will _____.

A)rise; appreciate
B)fall; depreciate
C)rise; depreciate
D)fall; appreciate

Question 55

If costs of raw materials fall in Russia, the demand for the ruble will _____, and the ruble will _____.

A)rise; depreciate
B)fall; depreciate
C)rise; appreciate
D)fall; appreciate

Question 56

If the value of the U.S. dollar is expected to rise in the future, the demand for the U.S. dollar will _____ and the dollar will _____.

A)remain unchanged; depreciate
B)rise; depreciate
C)fall; depreciate
D)rise; appreciate

Question 57

If the value of the U.S. dollar is expected to fall in the future, speculators will:

A)sell the dollar, and the supply of the dollar will increase, leading to a depreciation of the U.S. dollar.
B)buy the dollar, and the demand for the dollar will increase, leading to an appreciation of the U.S. dollar.
C)sell the dollar, and the supply of the dollar will decrease, leading to a depreciation of the U.S. dollar.
D)buy the dollar, and the supply of the dollar will remain unchanged, leading to a depreciation of the U.S. dollar.

Question 58

If the value of the U.S. dollar is expected to rise in the future, speculators will:

A)sell the dollar, and the supply of the dollar will increase, leading to a depreciation of the U.S. dollar.
B)buy the dollar, and the demand for the dollar will increase, leading to an appreciation of the U.S. dollar.
C)sell the dollar, and the supply of the dollar will decrease, leading to a depreciation of the U.S. dollar.
D)buy the dollar, and the demand for the dollar will remain unchanged, leading to an appreciation of the U.S. dollar.

Question 59

Suppose Brazil's Embraer aircraft company builds a new jet, which becomes very popular. Many international airlines begin ordering the jet. Which of the following figures shows what might happen in the market for the Brazilian real?

A)

B)

C)

D)

Question 60

When China joined the World Trade Organization, Americans:

A)increased their imports from China, but the supply of the U.S. dollar remained fixed in the dollar market.
B)did not change the amount of goods and services imported from China, and therefore there was no change in the exchange rate.
C)increased their imports from China, leading to an increase in the supply of the U.S. dollar in the dollar market.
D)decreased their imports from China, leading to a decrease in the supply of the U.S. dollar in the dollar market.

Question 61

In 2015, diplomatic relations were re-established between Cuba and the United States. In 2016, Carnival Cruise Lines began operating passenger cruises to Havana. This led to:

A)an increase in the supply of the U.S. dollar in the currency exchange market for U.S. dollars to Cuban pesos.
B)a decrease in the supply of the U.S. dollar in the currency exchange market for U.S. dollars to Cuban pesos.
C)no change in the supply of the U.S. dollar in the currency exchange market for U.S. dollars to Cuban pesos.
D)restrictions on the amount of U.S. dollars that could be traded.

Question 62

In 2019, U.S. regulations were passed whereby passenger cruises were no longer allowed to travel to Havana, Cuba. This led to:

A)an increase in the supply of the U.S. dollar in the currency exchange market for U.S. dollars to Cuban pesos.
B)a decrease in the supply of the U.S. dollar in the currency exchange market for U.S. dollars to Cuban pesos.
C)no change in the supply of the U.S. dollar in the currency exchange market for U.S. dollars to Cuban pesos.
D)restrictions on the amount of U.S. dollars that could be traded.

Question 63

After Vietnam joined the World Trade Organization in 2007, both the country's imports and exports increased significantly. Based on this scenario, which of the following would have occurred in the market for the Vietnamese dong?
(i) an increase in the demand for the Vietnamese dong
(ii) a decrease in the demand for the Vietnamese dong
(iii) an increase in the supply of the Vietnamese dong
(iv) a decrease in the supply of the Vietnamese dong

A)(i), (ii), (iii), and (iv)
B)(ii) and (iv)
C)(i) and (iv)
D)(i) and (iii)

Question 64

In 2010, Eyjafjallajokull (a volcano in Iceland) erupted and created a dangerous ash cloud over Northern Europe. This led to major travel disruptions, and tourism to Iceland immediately fell by 30%. Which of the following would have happened in the market for the Iceland krona?

A)An increase in the demand for the Icelandic krona
B)A ban on the use of the Icelandic krona
C)No change in the demand for the Icelandic krona
D)A decrease in the demand for the Icelandic krona

Question 65

In 2010, Eyjafjallajokull (a volcano in Iceland) erupted and created a dangerous ash cloud over Northern Europe. This led to major travel disruptions, and tourism to Iceland immediately fell by 30%. This included American tourists, some of whom cancelled their plans to visit Iceland. Which of the following would have happened in the market for the U.S. dollar?

A)An increase in the supply of the U.S. dollar
B)No change in the supply for the U.S. dollar
C)A decrease in the supply of the U.S. dollar
D)An increase in the demand for the Icelandic krona

Question 66

In 2008, the financial crisis had a severe impact on Iceland. Several of the country's private banks could not refinance their short-term debt, and this led to these institutions being rated as risky. As a result, there was _____ the Icelandic krona.

A)a depreciation of
B)an appreciation of
C)increased demand for
D)no change in the value of

Question 67

The larger a country's trade deficit, the _____ in the market for that currency.

A)greater the supply of a currency relative to demand
B)smaller the supply of a currency relative to demand
C)greater the demand of a currency relative to supply
D)more equal demand is to supply

Question 68

Suppose the domestic price of a gallon of milk is $3.75 in the United States, and a similar gallon of milk costs 45 yuan in China. If the nominal exchange rate is 7.08 yuan per U.S. dollar, then what is the real exchange rate?

A)1.0
B)6.36
C)7.08
D)0.59

Question 69

Suppose the domestic price of a gallon of milk is $3.75 in the United States, and a similar gallon of milk costs 70 pesos in Mexico. If the nominal exchange rate is 19.06 Mexican pesos per U.S. dollar, then what is the approximate real exchange rate?

A)1.02
B)3.67
C)2.05
D)19.06

Question 70

Suppose the domestic price of a beer is 300 Kenyan shillings in Kenya and a similar beer costs 30 Mexican pesos in Mexico. If the nominal exchange rate is 0.18 Mexican peso per Kenyan shilling, then what is the real exchange rate?

A)5.4
B)1.8
C)0.18
D)10.0

Question 71

Suppose the domestic price of a pair of boots is $139.99 and a similar pair of boots costs 10,695 Bangladeshi taka in Dhaka, Bangladesh. If the nominal exchange rate is 84.7 Bangladeshi taka per U.S. dollar, then what is the approximate real exchange rate?

A)126.0
B)2.1
C)1.1
D)0.91

Question 72

Which of the following figures shows the correct shift in the market for the Japanese yen if the real exchange rate depreciates in Japan?

A)

B)

C)

D)

Question 73

Which of the following figures shows the correct shift in the market for the Japanese yen if the real exchange rate appreciates in Japan?

A)

B)

C)

D)

Question 74

A real exchange rate depreciation in the U.S. dollar will lead to:

A)Americans importing less and exporting more.
B)Americans importing more and exporting less.
C)a current account deficit.
D)a negative trade balance.

Question 75

The balance of payments:

A)is the same as the current account balance.
B)is the same as the country's financial account balance.
C)summarizes a country's transactions with the rest of the world.
D)summarizes the amount of currency exchanged every year.

Question 76

If the domestic price (in dollars) is _____ the foreign price (converted to dollars), then the United States will _____ foreigners.

A)lower than; export more to
B)higher than; export more to
C)lower than; import more from
D)equal to; export more to

Question 77

The current account balance measures the:

A)difference between the country's financial inflows and financial outflows.
B)difference between the country's exports and the country's imports.
C)sum of the income that Americans receive from abroad and the income that Americans pay to people abroad.
D)difference between the income that Americans receive from abroad and the income that Americans pay to people abroad.

Question 78

The financial account balance measures the:

A)difference between the country's financial inflows and financial outflows.
B)difference between the country's exports and the country's imports.
C)sum of the income that Americans receive from abroad and the income that Americans pay to people abroad.
D)difference between the income that Americans receive from abroad and the income that Americans pay to people abroad.

Question 79

A fixed exchange rate can be defined as one where the:

A)demand for the currency is fixed.
B)supply of the currency is fixed.
C)government effectively sets the price of the currency.
D)government manages the price of the currency within a certain range.

Question 80

If the financial account balance is $2 trillion, then the current account balance is:

A)$2 trillion.
B)-$2 trillion.
C)zero.
D)$4 trillion.